It’s the Small Things: Direct Investing

Eight facts about the new strategies used by family offices, pension plans and other traditional LPs

MMG | December 13, 2018

1. Family Values

U.S. family offices employ an average of three investment professionals per office, two of whom focus on private equity, according to a survey from the Family Office Exchange published in 2017. —Institutional Investor

2. Investors See Real Potential in Property

Real estate remains the third-largest asset class for family office direct investments, representing about 10% of family office portfolios in North America, despite declining by 0.7% from 2016 to 2017, according to a UBS-Campden report.—National Real Estate Investor

3. Next-Gen Priorities

Single-family offices that have transitioned leadership to the second generation are more likely to make direct investments than those led by the first generation, according to an iCapital report. —iCapital Network

4. Penchant for Partnerships

Investing directly without private equity firms is far from the norm for limited partners like pension funds and sovereign wealth funds. Only 62 of more than 300 direct deals done by LPs in 2017 were solo endeavors, according to the Boston Consulting Group. The majority were co-investments.—Reuters

5. More than Middling Returns

A 2018 survey conducted by Intralinks and Global Fund Media revealed that 64% of limited partners will focus their direct investments on middle-market deals. —Intralinks

6. In It Together

The value of co-investment deals more than doubled from 2012 to 2017, when it reached $104 billion, but direct investment by limited partners has stayed relatively stable at around $10 billion. —McKinsey

7. Power of the Purse

Canadian pension plans are compensating their staff involved with direct investing at levels comparable to those of middle-market private equity firms—in the $1 million to $2 million range, sources say—in an effort to attract qualified talent.—Pensions & Investments

8. The (Flat) State of SWF Direct Investment Value

Last year, sovereign wealth funds completed 303 direct equity investments, up from 290 in 2016. But the value of these has largely stayed flat: $52.6 billion in 2017, compared with $51.4 billion the prior year.—International Forum of Sovereign Wealth Funds

This edition of “It’s the Small Things” originally appeared in the November/December 2018 issue of Middle Market Growth. Find it in the MMG archive.